paixaoduradora-blog

[whx-m]

I'm curious about online shops. Got any general information / details that might go missed?

i am a dumb dumb that has inhaled too much information the past couple weeks trying to learn so take what i say w/ several grains of your preferred salts

this all goes for etsy/shopify/whatever you use for e-commerce. the levels of serious you take it and get into it i think depends on how far you want to take your online shop... or how much you make. google the hell out of your states sales tax laws and apply for a sales tax permit in your state before you sell a damn thing. ill go over the stuff i think really needs to be highlighted for anybody mulling over starting a legit shop, esp artists who want to make a living selling their stuff.

edit: HEY HIT “J” ON YOUR KEYBOARD IF YOU DONT GIVE A SHIT BC THIS IS REALLY LONG AND IM NOT SORRY BC I THINK I LEARNED EVEN MORE WRITING THIS SO THANK YOU AND GOODNIGHT...

this will be how you feel when youre 2 hours into logo trademarking research

1. hm..

if you make, or plan to make, over $400 in sales, then most states consider this going beyond a hobby and being self-employed. so accept the fact you gotta pay a self-employment tax on your income.

also... gotta pay federal and state income taxes on your sales. even if your online shop is technically considered a hobby, not licensed as a business and you dont make over $400, still gotta report/pay income taxes on it. i know a lot of ppl dont take that seriously but it might bite you in the ass if you let it go on too long. 

2. register sole proprietorship so i know its real

registering in your home state as a legit business entity is likely a solid route to go if you really plan on fleshing your shop out and building it up for the future. most artists starting an art shop or craft shop file a SOLE PROPRIETORSHIP type of business- meaning the business isnt a place or a group of owners, its just lil ole you. you file under your own name or a “Trade Name”/DBA (Doing Biz As) with your state. but beware, this trade name isnt trademarked or federally protected. and since you ARE your business, any tax trouble means the IRS is auditing you personally and holding you personally liable.

its relatively affordable to file, but take your bookkeeping seriously... be careful because the IRS eyeballs sole proprietorships’ reported taxes and expense deductions hardcore, since the lines between business and personal expenses get really blurry and sketchy. the more you need to save, the more you need to log as a deduction, and the more you deduct the more likely they’ll try to audit you and catch a mistake. so keep your books right and tight. [ 50 state guides for applying for sole proprietorship ]

that being said, IMMEDIATELY OPEN A BUSINESS ACCOUNT AT BANK/CREDIT UNION AND KEEP ALL BUSINESS RELATED PURCHASES/SALES ON THAT ACCOUNT and not your personal one!!!

3. bite the hand that takes your income away!!!

sole proprietorship means your business income = your income, aka “pass thru entity” where profit in your business passes thru and adds to your personal taxable income. it used to be that your business income was just taxed at the same rate as your personal income bracket and thats it. BUT LISTEN UP! NEW 2018 TAX LAWS  ADDED A STANDARD 20% DEDUCTION TO TAXABLE INCOME FOR PASS-THRUS WITH LESS THAN $157,500 REPORTED INCOME. that's auto-subtracted along with your business expense deductions etc, before it’s taxed. what does that mean? it can knock your taxable income down: if you’re single and make $38,700 you get taxed $3.7k instead of $4.6k. If you make $82,500, you get taxed $14.5k instead of $18.1k. And thats not even accounting for other deductions before being taxed.

applying sooner than later for sole propriety/”pass through entity” can really help because of BUSINESS EXPENSE DEDUCTIONS. if you keep careful itemized records and your books clean, you can report tons of business related expenses and get your taxable income at the end of the year lowered. that new tablet, paints, software you bought on the business-only card? the gas you put in your car to get to your anime con, the hotel you stayed at? take it even further: shipping costs, wholesale costs, promo merch for advertising (stickers & swag) and even fees from hiring an accountant can usually be claimed. there’s a LOT that can be claimed.

dont skimp on the research because just logging and reporting expenses can make or break your shop. [heres another link] applying to be a business entity early means more of your start-up costs are logged and claimed as expenses.

and you know what happens at the end of the year when you report your income and claimed expenses? the expenses are subtracted from your total reported income, and youre taxed on whats left. so if you make $50,000 by the end of the year, but you spent $10,000 in approved business expenses, you’re only taxed for $40,000- but wait! 20% deduction= $8k, which drops your taxable income to $32,000. you just dropped from a 22% tax rate bracket to a 12% and you end up only paying $3,840 in taxes. that is only 7.6% tax on your 50k income!! and you could probably pay even less with all the other tax breaks you can score. 

make sure you read up on the IRS website on this stuff too. look up youtube videos and stuff to make sense of anything that confuses you. and dont forget to crawl your state’s own websites and see if they have any tax breaks or incentives for start-ups, artists, etc!!and now the worst part. im so sorry. 

4. the ugly seven-headed demon of sales tax and online shops....... stay with me plsthis is the biggest thing and becoming a super hot topic these days with states wanting to cash in on online sales to their residents

first things first: NEXUS. think of your sales tax nexus as the physical irl presence of your business, in a state-by-state basis. customers in states you hold nexus in? gotta charge them sales tax. customers from states you DO NOT hold nexus in? no sales tax for them! (for now... ill explain later)  

you have nexus in your home state, obviously since you are your biz and you live there, so you’ll need to charge sales tax on anybody buying from you in your home state. BUT.... if you contract someone in another state to do design work for you, unfortunately that means you also have nexus or “presence” in their state, too. if you have a warehouse storing inventory in another state, yep, another nexus and another state wanting to cash in on sales tax. getting enamel pins made in yet another state and they drop-ship your orders for you on your business’s behalf? yeah, likely another state to report sales tax to. 

collecting sales tax isnt a big problem- nearly every ecommerce site like etsy, shopify, bigcommerce and the like automatically configure sales tax in U.S. states you set up as a nexus for your shop. the problem comes around when you’ve got to apply for a sales tax permit in every nexus state, and then keep track of all the filing deadlines. every state is different. just four nexus states to report to means there are four permits to apply for, four reporting/filing schedules/deadlines to keep track of... and each state has different schedules, you could have two states requiring you to report annually and two states quarterly. it can be really hairy and a lot to keep track of if you’re not careful.try to keep your sales tax nexus in ONLY your home state, if at all possible. use manufacturers in your state to print/drop-ship orders.if theyre out of state, have them send the finished product back to you before you mail it off to customers, so you can avoid creating a new taxable nexus.

[ Sales Tax & Nexus Guide ]

still with me? this is the ugly part sorry:

the other big problem with having multiple nexus to report is how much sales tax varies- not just state by state but by city, town, county, even jurisdiction ! 

one state can have HUNDREDS of different sales tax rates to report, and you have to clearly report each individual one you collect sales tax in. 

for instance, over a year you sell to multiple people in your nexus state-- in the same exact county, under the same sales tax ordinance. they live near a bunch of schools so their county has an added jurisdiction sales tax that goes toward education programs. the report you file has to clearly define how much tax $ you’ve collected from them so that state knows exactly how much is going back to that jurisdiction, so they can divvy it up for that sweet sweet education funding.

now imagine that multiplied across counties, cities, and then doubled with another entire state... and thats why keeping your nexus low is a huge deal for someone who’s running an online store solo.

thankfully, you probably wont have to input all that data yourself. 

MAKE SURE you find a good website to settle into- that, at the very least, compiles this information for you to make it less of a headache to file in the right format, with the right info. there are upgrade auto-file options built into most ecommerce websites, so you dont even have to worry about it or think about missing a deadline... but that monthly fee might be too expensive to manage at first. that would be one of the FIRST things i’d do once i could swing it, to eliminate any chance of late fees, getting audited or having my sales tax permit suspended for that nexus state. 

5. IMPORTANT!!: even if you make absolutely $0 dollars in sales from any nexus state, you STILL HAVE TO REPORT IT AND FILE BY THE DEADLINE. don’t get a $50 fee over literally nothing.

ANIME CON OR CRAFT CON ARTIST/VENDOR? BEWARE! 

always research the convention’s home state/city sales tax regulations before registering (or blowing money making merch) for a con. it varies great and wide and has been changing a lot so always recheck before cons. some states supply simple time-limited permits, some states dont require sales tax at all for 2/3 day vendors, and some states will qualify a single physical sale as creating a permanent nexus. dont overlook that stuff or you’ll regret it when you get home to do business as usual with your shop and you have to start charging/reporting sales tax for every customer from that state!! 

6. but wait ore.. you said something ominous about no sales tax for non-nexus states...... “for now”..?

yeeahhh... there’s a big national reform going on currently and it boils down to: Jeff Bezos ruined ecommerce for everybody. fuck you greedy bastard!!

a slew of states are jumping on a bandwagon to snipe up more sales taxes and create “Economic Nexus Laws”. this may not really apply to you at the start of your shop, but its something you need to be aware of for future ref. 

basically states are passing laws that say, “If you make more than $XXXX or do more than XXX transactions selling to people here, that creates a state nexus and you need to get a sales tax permit with us.” which, is not ideal. the good thing is, most sales thresholds in these states are between $10k - $500k, so its not a problem you’ll face right off the bat. transaction numbers might be the one to watch out for, though. once you hit a few hundred transactions in a state it might create a nexus and you’ll have to start charging sales tax.

the problem is this: 1) every participating state has different thresholds, rules, and sometimes tax deductible/exempt items. thats a lot of fine print to go thru and toggling options on your shop, and a LOT of sales tax bookkeeping, filing, reporting, managing. 2) some ecommerce sales tax plugins and clients havent caught up yet to be compliant and convenient for online sellers, its a big job to program and categorize all these variables. when choosing your website host, be sure to vet their built in sales tax clients and see that they’re updating and streamlining capabilities ASAP. it may not be a concern now, but you wouldnt want your shop to boom and have to shut down, lose money and switch hosts to be eco-nex sales tax compliant.3) for successful solo start-up shops, this almost makes it impossible to file your own sales taxes once you pass those thresholds. this is like 30 states! youd spend so much time doing paperwork, its just not feasible. there will be a rising cost of economic nexus management and auto-filing services that you just cant run your business online without.

[ Everything You Need to Know Abt this Shit ] ( ^ full list of state regulations and updated with new developments so bookmark this page)

tl;dr: online shops are complicated, research literally every term you dont know and look up youtube videos on everything you suck at. if youre still motivated after being depleted of brain power, then go the fuck for it and all the Moon Crystal Power Make Up to you